October 2022 Monthly Review

A Look Back

The above saying has been attributed to great leaders like Franklin Roosevelt, Teddy Roosevelt, Ben Franklin and Abraham Lincoln. It has come to mean that you are running out of options, out of possibilities, or out of patience. Ultimately, the intention is to keep going…don’t lose patience. If you need to utilize an anchor, like the knot at the end of the rope, then do so. But whatever you do, hold on. I saw this quote recently and it reminded me of current times in our economy and financial markets. We have to remind ourselves of what we are really trying to accomplish with our money. We think about the money that we need now to live on. We think about the money that we may need later as we retire, and even money we may never need but want to pass on to our heirs. As money managers, we take very seriously the role we play as financial stewards for our clients. We know certain truths to be true from decades and decades of data and market movement. Some of it is just math…we know that if we can get the most amount of money earning the most amount of return, it will serve clients well over time. It is why we tell our young people how important it is to start saving and investing early. The power of returns compounding year after year is substantial. And so, even though the rope can get slippery some times, and even difficult to hang onto, it is important sometimes to tie that knot…install that foundation…and hang on. Perhaps a grip adjustment is needed now and then as we make adjustments and react to market environments, but we keep in front of us the bigger picture things that we are trying to accomplish…financially, spiritually, etc.

The large-cap S&P 500 bounced back strongly in October with an 8.1% return. Small and mid-cap stocks did even better, while international stocks trailed, and in the case of emerging markets, significantly so with a -3.1% return for the month. Core bonds continued their unprecedented calendar year, negative move. The Bloomberg Aggregate Index finished the first ¾ of the year with a -15.72% return. It is really the main story for the average investor this year. For the most part, investors understand that stock
markets don’t go straight up forever. There are periods of volatility and down moves as markets consolidate and regroup. We just experienced a significant downturn in early 2020 with the onset of the Coronavirus pandemic. However, that was tempered by positive returns in the core bond asset class. Not so thus far in 2022.

A Look Ahead

The Fed recently raised the short-term Fed Funds rate another .75%, as expected. We have gone from zero to 3.75% in seven months. To put it in perspective, a long-time friend and I were talking about the effect the rate move was having on the mortgage side. The average 30-year mortgage has gone from 2.90% to over 7% currently. On a $300,000 loan, that means that a typical monthly payment went from $1,250 a month to $2,000! Put another way, the same potential buyer would have to lower his sties to a $190,000 loan for the same $1,250 monthly payment. The pain is real and the potential damage to the housing market cannot be underestimated. The flip side is that the increase in rates has given investors a real investment alternative for their money for the first time in over two years. One year U.S. Treasury Bills are currently yielding over 4.8% versus the .2% yield of a year ago. Some of the excesses of our recent past are playing out in front of us, and with them, opportunities will be present. It is why it is important to tie that knot.